Five Advantages and Disadvantages to Franchise Businesses
Many Americans dream of owning their own business and being in control of their destiny. The only issue is that very few folks will actually dive in and take the risk to become their own boss. The reason for this holdback: it’s the fear of failing.
The rate of failures on startup businesses varies from person to person. However, Scott Shane of Case Western Reserve University often has his data cited. He states that failure rates in one year are about 25 percent and 10-year failure is about 71 percent. What do these numbers mean? If four businesses begin in one year, one business is bound to fail in that first year. 71 percent of businesses currently open will be shut down in 10 years.
Understanding Entrepreneurship In Franchising
Since failure rates are high, it’s of no surprise that very few people will try their hand at it. Many people don’t know that a way to become a business owner is to start a franchise. Franchises have less of a chance of failing and are actually do well monetarily. Using the same 10-year study from above, nearly 62 percent of franchises are still in business, an extremely high figure.
Why Franchises Stay In Business
Why is it that franchises stay in businesses longer than a startup company? Franchises have a large quantity of advantages that novice entrepreneurs don’t have, which means the venture is less risky.
Five Advantages of Franchises
Advantage 1 – Training and Support
Franchise businesses will give new franchise owners plenty of training and support in the beginning. Franchisers get a fraction of the profits so it’s in the best interest to ensure that the spin-off franchises do well. Smaller franchises offer people consequential support.
Advantage 2 – Purchase Company Model, Not Just Name
The big reason franchises tend to last and thrive is that the business model is already working. It’s not just about the name or the brand; it’s the model itself that helps to make this franchise successful.
Advantage 3 – Bargaining Power
When you have a franchise, you have some bargaining power with your suppliers. Independent, new business owners don’t have this kind of power or luxury and must earn it, unlike a franchise.
Advantage 4 – Expert Support
When you get involved with a franchise, your business is not alone. If you ever have problems or questions then you seek out some advice. Whatever business franchise you go into, you’re bound to have hundreds of people you can turn to that would love to give you advice so that you succeed. Many larger franchises will also give individual training and support.
Advantage 5 – Well Capitalized
Most franchises are well capitalized, which makes them have a high survival rate. Most startup businesses don’t have this luxury. People who want to get involved with franchises usually have just enough requirements to buy into the business.
Five Disadvantages of Franchises
The disadvantages of franchises are pretty clear-cut. Make sure to understand them before you decide to that the franchise business is right for you.
Disadvantage 1- Loss/Lack Of Control
Independent franchises often have to follow the guidelines set forth by the franchise including what kinds of tables to use, wallpapers and more. If you don’t want to give up that control, this won’t be the business for you.
Disadvantage 2 – Less Long-Term Profits
Franchises are a big business but making it rich isn’t always there. You’ll earn a decent income but nothing like Microsoft or any other Fortune 500 company.
Disadvantage 3 – Hard To Sell
When you have a franchise, it’s harder to get out from underneath it especially if it seems the parent company is having problems.
Disadvantage 4 – Possibility Of Parent Company Going Out Of Business
It doesn’t matter if your business is doing good or not; if the parent company goes under, so will you. Make sure you choose a company that’s been doing well, both in good times and in bad.
Disadvantage 5 – Possibility Of Getting A Bad Name
When a franchise fails to do well, you could be indirectly affected by it. Your reputation will be tarnished just because of the name.